The Cannes debt festival

It's the biggest event in the French resort's history – and an absolutely critical one for the world leaders who are taking part in it. Ben Chu previews a G20 summit that could make or break the world economy

Cannes is associated with sun, sea and celluloid. But today the French city on the Mediterranean coast – renowned for its annual film festival – will echo to deliberations over Credit Default Swaps, fiscal sustainability and Special Purpose Vehicles. The leaders of the world's largest economies will gather for two days' worth of meetings, working lunches and press conferences.

The G20 was established as a forum in 1999. And at the height of the international economic crisis of three years ago, in a sign of how the global balance of power had shifted, it eclipsed the G7 of wealthy nations as the most important meeting of world leaders. No longer could emerging powers such as Brazil, India and China be credibly excluded from the top decision-making table.

This year's meeting takes place at a time of emergency too. This summit's host, the French President, Nicolas Sarkozy, had intended the meeting to set the international seal on the rescue package agreed last week by eurozone leaders in Brussels. He had also hoped to use the occasion to persuade the Chinese and Japanese G20 delegations to invest in the Eurozone bailout fund. There had also been talk of encouraging Russia, Brazil and India to contribute.

But Monday's surprise announcement by the Greek Prime Minister, George Papandreou, that Greece will hold a national referendum on the Brussels bailout package in January has exploded a grenade under all those careful plans.

If the Greek public were to reject the bailout package, it could potentially lead to Greece defaulting on its €350 billion of debt. This would blow huge holes in the balance sheets of European financial institutions which have lent to Greece. American banks could also be plunged into crisis too, thanks to the credit insurance they are believed to have written on Greek debt. And under such circumstances Asian sovereign wealth funds would, of course, be most unlikely to put up any money to support Europe.

Mr Sarkozy and the German Chancellor, Angela Merkel, summoned Mr Papandreou to Cannes yesterday, in advance of today's summit, to find out why the Greek Prime Minister called the referendum and why he did not warn them in advance of his intentions. Discussions between the French and German leaders over what to do with Greece will continue, informally, over the next two days.

Some German politicians were calling for the €8bn installment in bailout funds, due to be delivered to Greece this month, to be withheld until after the vote. Then there were the calls in France for the Greek referendum to be brought forward to December. Finally there are the groups who want the Greek people to be asked, simply, whether they want to remain in the single currency, rather than whether they approve of the bailout terms. Last night, after discussions with Ms Merkel and Mr Sarkozy, it seemed that all these groups had got their way.

They have already ruled out altering the terms of the existing bailout deal in order to help the Greek Prime Minister win the referendum. The pair will keep a sharp eye on the results of the confidence vote in the Greek parliament on Mr Papandreou's government due to take place on Friday night.

The Italian Prime Minister, Silvio Berlusconi, is also likely to come under pressure at the meeting to push ahead with economic reform in the light of the alarming increase in the interest rate on Italian debt registered this week after the Greek referendum shock. An uncontrolled Greek default would be a disaster. But a default by Italy on its €1.8 trillion of outstanding loans would almost certainly break the single currency apart.

The G20 already had a crowded agenda before this fresh crisis broke out. There are due to be talks in Cannes on subjects ranging from agriculture, to trade, to climate change, to job creation and corruption. The Microsoft founder, Bill Gates, will present his evaluation of a global Financial Transaction Tax – designed to fund development projects in poor nations – to the assembled global leaders.

Ms Sarkozy, Ms Merkel and Mr Berlusconi have pushed for such a levy. But our own Prime Minister, David Cameron, backed by the US, Canada and Australia, has resisted, making a stalemate likely. Mr Cameron will also present a paper on the future of global governance which will look at how the G20 could be put on a more organised footing.

Those set-piece discussions will go ahead. But the flames of the eurozone crisis, raging right outside the conference room door, will make it difficult for most of the leaders present to concentrate on anything else.

Stars of the show... and what they want

Barack Obama (USA)

Bankability The leading man of global finance. Despite debt levels of 100 per cent of GDP (and rising), a $1.4trn annual deficit and a dysfunctional political system, US Treasury bonds are still considered one of the safest assets in the world.

Forthcoming releases Presidential elections will take place in November 2012. The impact on the US of a return to recession in the eurozone could make it harder for the President to secure a second term.

George Papandreou (Greece)

Bankability Are you joking? Greece has public debt equal to 160 per cent of its annual GDP. And that GDP is set to shrink for the fourth straight year in 2012. Even after 50 per cent forgiveness of its debts (agreed in Brussels last week), Greece's debt to GDP ratio would still be 120 per cent of GDP by 2020.

Forthcoming releases Papandreou faces a confidence vote in the Athens parliament on Friday. If he wins, he will hold a referendum.

Angela Merkel (Germany)

Bankability Leading lady. German debt – at 82 per cent of GDP – is considered the safest in Europe by investors. And German manufacturers are among the most competitive in the world, which is one of the reasons why Germany runs a persistent trade surplus.

Forthcoming releases Political future hangs by a thread. Her party has slumped in the polls. And many in her coalition are unhappy about bailout cheques for stricken nations.

Nicolas Sarkozy (France)

Bankability On the skids. France's debt-to-GDP ratio is a moderate 82 per cent, but critics fear that French guarantees for eurozone neighbours could overstretch its finances. Its banks are also highly exposed to southern European sovereign debt.

Forthcoming releases The French President, Nicolas Sarkozy, faces election in April 2012. His approval ratings have crept up after the birth of his daughter and the successful French-led Libyan intervention.

David Cameron (UK)

Bankability An unlikely stalwart of the debt markets. Despite a double-digit deficit, British debt is liked by investors. The fact that the UK is not in the single currency and can thus devalue it is regarded as a strength.

Forthcoming releases No national elections are due to be held until 2015. But Cameron has pinned his economic credibility on an aggressive deficit-reduction strategy, which risks being blown apart by the crisis among our European trading partners.

Hu Jintao (China)

Bankability The rising star of the East. Beijing has modest public debt and, more importantly, is sitting on about $3 trillion in foreign-exchange reserves.

Forthcoming releases The President will step down next year. But the Communist Party will remain in charge and it is determined not to be taken for a ride by the Europeans. The party is unlikely to part with any cash without prizes in the shape of ownership of European companies.

Cannes in numbers

8,500 Number of delegates and members of the media expected to attend the G20 meeting.

80 Percentage of the world's trade represented by G20 nations. G20 member states also represent more than two thirds of the world's population.

5 Number of additional nations invited to join the G20 members at the meeting. These are: Equatorial Guinea, Spain, Singapore, Ethiopia and United Arab Emirates.

12,000 Number of police and security officers deployed in Cannes area.

5-15,000 Number of people expected to protest in Cannes during the event.

12 Security precautions dictate that anyone above the age of 12 must wear identity badges to move around the city.

35,000 Estimated number of nights booked in Cannes hotels by the attendees at the four-day event.